Amazon, eBay Face Off Over Online Sales Tax before House Panel

Senior public policy officials with Amazon and eBay squared off before a House committee on Wednesday, joining other ecommerce stakeholders in expressing sharply conflicting views on the contentious issue of online sales taxes.

The House Judiciary Committee convened its hearing amid competing legislative proposals in both chambers for closing what advocates say is a loophole that effectively enables shoppers to dodge sales taxes on most online purchases, putting smaller brick-and-mortar retailers at a disadvantage.

The debate over online sales taxes is not new, but while ecommerce outfits have traditionally opposed efforts to require them to begin collecting the tax, Amazon has recently broken ranks. At Wednesday's hearing, Paul Misener, Amazon's vice president of worldwide public policy, reiterated support of federal legislation that would impose the requirement, while also simplifying the patchwork of state and local tax codes that critics have said would create an unreasonable burden for small sellers.

"It is absolutely doable," Misener said, adding that Amazon would help sellers on its marketplace obtain software to perform the various state and local tax calculations and provide support to integrate it into their sales flow. "The little guy will get the services provided for him or her. Those small sellers won't have to create the software from whole cloth."

Of a different opinion is eBay, which dispatched Tod Cohen, the firm's deputy general counsel and vice president of government relations, to make its case to the committee in opposition of legislation that would force sellers on the marketplace to begin collecting sales taxes on out-of-state purchases. Supporters of such a measure argue that it is an issue of fairness, that Main Street brick-and-mortar retailers are forced to compete with their online rivals on an uneven playing field. But Cohen, citing estimates that in-store purchases will account for some 93 percent of all retail commerce in 2012, argued that small, physical shops are being crowded out by big-box retailers, not online sellers buoyed by whatever benefit they might gain from the current tax landscape.

Moreover, Cohen told the committee that every sustainable retail operation now has an online component to it, and that "brick-and-click" might be a more suitable term for what have traditionally been referred to as "brick-and-mortar" stores.

"The very idea that this debate is about "The Internet" v. "Stores" is a false paradigm," Cohen said in his prepared testimony. He told the lawmakers that the biggest retailers have been growing the most rapidly, and that a measure to impose a sales-tax collection requirement on all ecommerce would disproportionately harm smaller outfits by saddling them with burdensome implementation costs, while the larger, dominant retailers with stores across the country already collect the taxes.

"If small business retailers using the Internet were gaining unfair advantages from current remote sales tax laws, one would expect that their share of Internet sales would be growing. But it is not," Cohen said. "Just as importantly, the idea that small business retailers on the Internet are a threat to the survival of small business store fronts is ridiculous. The threat to small independent retailers is coming from giant multi-billion dollar competitors online and offline, which has been the case for nearly half a century."

The long-simmering debate over online sales taxes has its roots in the era before the advent of the commercial Internet. A 1992 U.S. Supreme Court ruling in a case concerning a catalog company held that a state can only require sellers to collect sales taxes on purchases if the seller has a physical presence in that state. The enshrined physical presence as the litmus test for a state's authority in the matter, short of an act of the U.S. Congress, and the high court has not revisited the issue since.

At least three bills have been introduced in the House and the Senate in the current Congress that would empower the states to require out-of-state retailers to collect and remit sales taxes. But in order to do so under some versions of the legislation, states would have to sign on to an interstate tax-simplification framework known as the Streamlined Sales Tax and Use Agreement. Certain provisions in the proposed legislation would enable states to impose the requirement without joining that coalition, provided they demonstrated other steps toward simplifying their tax codes.

For some, the idea of the federal government lending its imprimatur to an interstate compact raises troubling federalism concerns, and even some state leaders who agree with the precept of simplification have stayed away from Streamlined for fear of sacrificing their states' autonomy on tax matters.

"The reason Texas doesn't belong to Streamlined now is we're not willing to give up that right to determine what's taxable and" what's not, Texas State Rep. John Otto told the panel, while still advocating for a federal law to compel Internet retailers to collect taxes. Otto estimated that Texas loses between $600 million and $800 million in uncollected revenue from Internet sales.

Consumers are currently required to remit taxes on online purchases in the form of a use tax, but most either don't know about that obligation or ignore it. From a practical perspective, states have claimed that it is impossible to collect all those payments from individual residents, and as a result, mounting budget shortfalls have been further exacerbated. "This is not a new tax we're imposing. It's a tax we've been unable to collect," Otto said.

Opponents have charged that even the Streamlined framework is still excessively complex. Streamlined, for its part, has been developing software to help online sellers grapple with the tax calculations, but some critics remain unimpressed.

"For really small sellers that implementation cost is going to be higher than the tax" collected, said Patrick Byrne, chairman and CEO of Overstock.com. Byrne called the current Streamlined software "vaporware," though he allowed that after a period of development it could grow into a tool to help smaller retailers assume the tax responsibility.

The pending bills also offer exemptions for small sellers with annual revenues that don't meet an annual thresholds, though each bill varies in the minimum amount.

About the AuthorKenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects for more than four years, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here .

About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.

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